Helpdesk Report: Economic drivers of conflict in the Western Balkans

Report
from Governance and Social Development Resource Centre
Published on 01 Sep 2017

Iffat Idris and Anna Strachan
13. 03. 2017

Question

To what extent do economic factors drive instability and conflict in the Western Balkans (Albania, Bosnia-Herzegovina, Kosovo, Macedonia, Montenegro and Serbia)?

1. Overview

This report looks at each of the six Western Balkans countries listed above, identifies the key economic challenges they face and assesses whether any of these are, or have the potential to become, drivers of conflict. The literature reviewed largely comprised reports from international development/finance organisations, notably the World Bank, IMF and European Commission, as well as journal/newspaper articles.

The key conclusion is that, while all countries in the region face serious economic challenges, these are not per se drivers of conflict. To date the main effect of these - particularly of high unemployment - seems to be to drive outward migration from the Western Balkans to more advanced economies in Europe. But, as economic stresses grow, and at a time when the European Union is itself facing economic crisis, it is questionable whether this situation – economic factors not leading to social unrest - is sustainable (Economist, 2012); particularly given the presence of significant other (non-economic) conflict drivers in most countries.

The main findings of the report are as follows:

  • Impact on growth of global economic crisis of 2008 and of Eurozone crisis: All six countries have shown progress in moving from closed, centrally planned economies to open, market-based ones. Post-communist growth in all was generally strong, often helped by international aid, but dropped following the 2008 global economic crisis (World Bank and Bertelsmann Stiftung country reports). Drop in demand from the Eurozone has hit their economies hard (Economist, 2012). The Greek economic crisis, in particular, is causing negative ripple effects, most notably in Albania which depends heavily on Greek foreign direct investment (FDI) and remittances from workers there (USAID, 2012; CIA, 2017a).
  • Structural issues hampering investment and job creation: While the specific issues and importance of these varies from country to country, consumption-based economies, lack of production, weak competitiveness, a weak business environment, oversized and inefficient public sectors, high levels of public debt, organised crime and corruption are common factors deterring investment and limiting growth and job creation (World Bank, IMF, CIA and Bertelsmann Stiftung country reports).
  • High unemployment, especially youth unemployment: The Western Balkans as a region is characterised by high levels of unemployment, particularly among young people and women. Unemployment across the region in 2015 stood at 21.6 percent, with youth unemployment at 45 percent (Lange, 2016: 2). Individual country youth unemployment rates range from 38.8 percent in Montenegro to 54.3 percent in Bosnia and Herzegovina (World Bank, 2016a: 7). Nearly 25 percent of youth in the six countries are inactive – not in employment, education or training (ibid).
  • Migration from Western Balkans countries: All the factors listed above have contributed to high levels of migration out of these six countries to the rest of Europe. They accounted for 177,925 asylum applications in the EU in the first three quarters of 2015 alone (Lange, 2016: 1). Expat numbers for Western Balkan countries range from 10-30 percent of the population, compared to 2-4.5 percent in most western European countries – the bulk of these are economic migrants (Lange, 2016: 2).
  • Migration through Western Balkans: The Western Balkans have become a key migration route for refugees from Syria, Afghanistan, Iraq and other countries, seeking asylum/a new life in the EU (European Parliament, 2016). To date, assistance from the European Commission to cope with the refugee crisis, coupled with the fact that most migrants are keen to move on from the Western Balkans, mean the refugee crisis – while serious – has not been a conflict driver. Indeed, the migrant crisis has led to increased regional cooperation (Lange, 2016).
  • EU accession: All six countries are at various stages along the road towards EU accession. While the literature points to ambiguity about the perceived benefits of joining (Lange, 2016), for many countries this is a goal and could prove a stimulus for urgently needed but challenging reforms. IMF financing agreements serve a similar purpose, pushing countries to undertake vital reforms.
  • Regional factors promoting resilience: The Economist Intelligence Unit identifies three factors contributing to stability. The first, ironically, is the backwardness (e.g. large agricultural sectors, important role of extended families) of the region’s economies (compared to western and northern Europe) that has helped cushion populations from the effects of the economic downturn. A second factor is the decline of trade unions and the left, meaning there are few social and political forces that can organise large, non-spontaneous demonstrations. Thirdly, opinion surveys point to widespread apathy, not conducive to social activism (Economist, 2012).